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Chapter 15: Q. c-For Critical Thinking (page 331)

If interest rates earned by Banks an all of their assets fell close to zero. why might all bank customers have to pay interest fees on deposits they hold with banks?

Short Answer

Expert verified

When a bank fails, the Federal Deposit Insurance Corporation is in charge of collecting and selling the bank's assets as well as settling the bank's debts.

Step by step solution

01

Introduction.

Deposit account customers receive interest on their deposits from financial institutions. Deposit accounts are preferred by investors because they are a safe place to save money, earn a small amount of fixed interest, and have insurance.

02

Banks and all of their assets were nearly worthless.

When a bank fails, the FDIC is responsible for collecting and selling the bank's assets as well as settling its debts. If your bank fails, the Federal Deposit Insurance Corporation (FDIC) will usually repay your protected deposits the next working day.

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Considering the following data (expressed in billions of U.S. dollars), calculate M1 and M2.

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During the 1945-1946 Hungarian hyperinflation, when the rate of inflation reached 41.9quadrillion percent per month, the Hungarian government discovered that the real value of its tax receipts was falling dramatically. To keep real tax revenues more stable, it created a good called a "tax pengō," in which all bank deposits were denominated for purposes of taxation. Nevertheless, payments for goods and services were made only in terms of the regular Hungarian currency, whose value tended to fall rapidly even though the value of a tax pengö remained stable. Prices were also quoted only in terms of the regular currency. Lenders, however, began denominating loan payments in terms of tax pengös. In what ways did the tax pengö function as money in Hungary in 1945 and 1946?

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